Antibiotic Tax No Panacea for Drug-Resistance

The New England Journal of Medicine recently featured an article (“Preserving Antibiotics — Rationally”) by economists Aidan Hollis and Ziana Ahmed, arguing for an antibiotic tax to discourage inappropriate use of antibiotics in livestock. Hollis and Ahmed’s argument boils down to an observation that ranchers’ use of antibiotics imposes a negative externality on the rest of society by increasing the risk of emergent antibiotic resistance, and that a tax can help by forcing farmers to internalize that cost.

Taxing antibiotics would indeed reduce ranchers’ antibiotic use, but whether this slows or hastens the rise of antibiotic resistance depends on whether the negative externalities that Hollis and Ahmed identify outweigh the positive externalities of antibiotic use that are entirely missing from their analysis.

To see the point, consider the problem of a rancher with a cow, sick with some drug-susceptible disease, that he would like to sell to another ranch. Eradicating the disease requires a two-week regimen of antibiotics, while temporarily suppressing its symptoms only requires a one-week regimen. Public policies that increase the cost of antibiotics will tend to push this rancher toward the one-week regimen, increasing the danger of antibiotic resistance even as fewer antibiotics are prescribed.

The problem here is that we want to encourage ranchers to use antibiotics appropriately on sick animals — society enjoys a positive externality in that case, as disease spreads less widely and appropriate antibiotic use minimizes the risk of rising resistance — while also discouraging them from using antibiotics inappropriately for growth-promotion. Consequently, society would actually benefit most if we were to subsidize some uses of antibiotics while taxing others.